Innovations in Wealth Management Technology Awards 2014

Wealth managers must innovate or else stand to lose high net-worth clients. New players with technology at their core are shaking up the private banking industry.

Innovating the wealth management industry

Harmen Overdijk has been a private banker for the best part
of 14 years, working for Meespierson, Fortis and latterly EFG
as head of investments in Asia. In August, he and his former
colleagues decided to set up their own wealth management
business in Hong Kong, calling it Caidao Wealth. It is a
partnership with private equity firm Caidao Capital.

"We just recognized that more and more clients are looking
for entrepreneurial solutions rather than standard
private-banking solutions. Going to your banker for stock ideas
and execution is the same now as it was in the 1920s. Other
industries have changed and yet banks seem unwilling to
open their eyes to that," says Overdijk.

His firm offers access to asset classes that many
traditional firms do not, as well as having partners in
technology that allow for portfolio overviews and tailored news
feeds, using an application from
DragonWealth.

Overdijk says: "We were overwhelmed when we started our own
company. We expected some clients would join us, but it has
turned out that all our clients are keen to join us. We
underestimated the fact that a lot of our clients are
entrepreneurs and so our company is appealing to them."

Indeed much of the move to new players like Caidao is being
driven simply by changes in demographics. There are 31 billionaires under 40 in the world,
according to Forbes, and wealth is ending up in younger and
younger hands due to the expansion in young entrepreneurs and
the handover of wealth from the baby-boomer generation.

The Future Wealth report by Scorpio
Partnership, SEI and NPG Wealth Management released earlier
this year showed 92% of high net-worth individuals use digital
solutions to inform their wealth-management decisions. Younger
generations see these digital solutions as replacements to the
traditional private banker. Those under 40 regard their private
banker’s experience as far less important than
those respondents over 60. And the 40-and-below set also find
it considerably more important to be able to customize their
portfolios online than do the over-60s.

Starting your own financial company is so much easier
now thanks to cloud-based solutions. You can buy
top-quality software in our field and use it and pay
for it as a small company. Integrated reporting is also
something that is very cost-effective to provide now
thanks to technology

Harmen Overdijk, Caidao Wealth

In January the World Economic Forum launched a project to look
at innovation in financial services. It has highlighted two key
forces at play in wealth management: automation and client
empowerment, says Jesse McWaters, project manager in financial
services at the WEF.

Technology-supported
automation has been one of the doors that has let in firms
such as
Nutmeg in the UK,
FutureAdvisor or Betterment in the US. All three automate
areas such as consolidating accounts and assets and either
advising on allocation or products or managing the
clients’ portfolio on a discretionary basis. By
automating parts of the wealth-management process, such firms
have enabled clients who are often overlooked by financial
advisers to move into the wealth management market. They are
growing fast.

"Automation allows for these businesses to be scaled up very
easily, unlike with financial advisers who can take on only so
many clients," says McWaters.

After asset allocation to passive funds, what can be
automated next? Surely much more. And also where will these
firms choose to go in terms of developing deeper relationships
with their end users? Will they be a threat to the private
banks? Automation in these guises is putting tremendous
pressure on financial advisers and the 1% plus that they
charge.

"For the incumbents, it is a challenging moment as they have
to decide whether to go the automation route now, which may end
up cannibalizing their existing market share," says
McWaters.

Automation is also occurring on the institutional side,
which is more palatable to financial institutions. FundApps in
London, for example, automates the management of regulatory
disclosure and disclosure for investment funds. The due
diligence process is also being automated by the likes of
DueDil.

"These firms can help existing companies do more with less,"
says McWaters.

Empowerment is the buzzword of this change. It can induce
cringing from the cynical, but it means that clients want to be
in the know. They want transparency. They want to have research
to make their own decisions. They want access to asset classes
that their banks do not give them. They want to know what their
portfolio is doing at all times and how much they are paying
for the services they are getting. That these are considered
novel demands seems absurd given the vast availability of
information and price comparisons that the internet now
provides in nearly all consumer sectors – bar
finance.

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